Friday, May 2, 2014

Market To Drop 30%? Q1 Growth Fell Into Negative Territory, Margin Debt Takes A Turn From All-time High Levels, Treasury Yields Tumble To 11-Month Lows


Margin debt takes a turn from all-time high levels. Be concerned?
 
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It doesn’t matter until it matters! Will a decline in margin debt from all-time highs matter this time? Doug Short each month does an excellent analysis on margin debt and the latest update is now out.  (see current info here) 
In the past margin debt at historical levels didn’t seem to matter, until margin debt started decreasing. The above chart highlights that at each (1), margin debt was at historical highs and then turned south and the S&P 500 soon followed.
In my humble opinion one should not look at margin debt as the holy grail to portfolio construction. It has been a good tool in helping to know when to overweight and underweight towards risk assets.
Margin debt has been swiftly pushing higher for the past 8 months in a row and now slipped a little this past month. IF….IF margin debt should start decreasing swiftly, history would suggest something different is taking place in the mind of aggressive investors.
NYSE Margin Debt Slips For The First Time In 8 Months
The Markets Just Sounded the Death Knell For QE
Globally Central Banks have kept an eye on the Bank of Japan, which announced the single largest QE program relative to its GDP in history. That one single QE program announced in April 2013 is equal to over 20% of Japan’s GDP. But things turned sout…
Everyone’s Q1 GDP Estimates Turn Negative
Yesterday, the BEA announced Q1 GDP climbed just 0.1%. 
This afternoon, Wall Street is saying it’s even worse.
Citing weak construction spending data, several firms’ GDP tracking models now show Q1 growth fell into negative territory.
“Residential construction was a bright spot, rising 0.7% on the month and standing 15.2% above year-ago levels,” noted Barclays’ Cooper Howes. “Nonresidential construction fell 0.1%, however, and there were downward revisions to February and January. On the whole, this lowered our GDP tracking estimate three-tenths, to -0.2%.”
Macroeconomic Advisers, a widely cited source for GDP estimates, said its model fell 10 bps to -0.1%, also weaker-than-expected construction spending below BEA assumptions.
If It Wasn’t For Obamacare, Q1 GDP Would Be Negative
Here is a shocker: for all the damnation Obamacare, which according to poll after poll is loathed by a majority of the US population, has gotten if it wasn’t for the (government-mandated) spending surge resulting from Obamacare, which resulted in the biggest jump in Healthcare Services spending in the past quarter in history and added 1.1% to GDP …
Treasury Yields Tumble To 11-Month Lows; Stocks Hold Near Record Highs
It was not a Tuesday, and it was not a Fed day – so stocks closed red. Volume was dismal. TheRussell 2000 tested its 200DMA once again (and bounced) but was unable to sustain that strength. Once again the biggest news was the continued collapse in Treasury yieldsas a combination of massive spec positioning short “because rates have to go up” and the ugly reality of macro weakness combined to send rates to 2014 lows (and 11-month lows for 30Y yields). This is the biggest year-to-date drop in 30Y yields since 2000. The Dow’s weakness meant it lost its gains for 2014. Despite ongoing USD weakness (driven by GBP and EUR strength), commodities traded lower with silver worst today (red for 2014), copper weak, and gold and oil flat to modestly lower. VIX was pummeled down to almost 13 midday (which makes perfect sense ahead of NFP – why would anyone hedge that?) but leaked higher as bond market reality set in during the afternoon. The ubiquitous very-late-day VIX slam pulled stocks higher in a buying panic but failed to get the S&P, Dow, or Russell green on the day.
 …
Small Caps fell 30%+ twice when this took place…its back!
 
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When the Russell has been hot on a 5-year annualized basis, it has cooled off… to the tune of 30%+ declines in 1999 and 2007.
Now the Russell has had a higher 5-year annualized return than the 1999 and 2007 peaks! Also the Russell is back at the top of its rising channel, where it has found some resistance.
Will it be different this time? From a 5-year annualized performance, “it is different this time” as it has been hotter than the 1999 & 2007 peaks.
What will the results be? Above my pay grade. Premium Members shorted the Russell 2000 several weeks ago due to this situation, with a stop at resistance.
Stock Market Headed for a 1987-Style Crash
Like it or not, bad luck is just around the corner for investors.
After stacking up five years of gains, the stock market is starting to look awfully wobbly. And the likely result will be a crash as bad or even worse than what was seen in 1987.
That’s what analyst Marc Faber believes, anyway: “I think it’s very likely that we’re seeing, in the next 12 months, an ’87-type of crash,” he recently told CNBC. “And I suspect it will be even worse.”
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